EA's bid to acquire Take-Two gets closer scrutiny

EA, which is located in Redwood City, Calif., and New York-based Take-Two received second requests for information from the Federal Trade Commission related to EA's $2-billion cash offer, which would combine two of the industry's largest game developers.

Second requests are rare and signal that regulators are closely scrutinizing a potential deal.

EA has since launched a hostile tender offer, bypassing the board and appealing directly to Take-Two's shareholders.

Take-Two Chief Executive Strauss Zelnick, whose ZelnickMedia wrested control of the company a year ago, urged shareholders Thursday to reject the offer. He did not rule out the possibility of selling at a higher price.

"This isn't about fending anything off," he said in an interview. "It's about maximizing shareholder value."

Take-Two said in a statement that while its board had rejected EA's offer, "we also don't anticipate that there would be significant or insurmountable antitrust issues that could not be remedied."

EA spokesman Jeff Brown said the request was "not uncommon for this type of transaction" and that "we believe this acquisition would not be anti-competitive."

He said the company would consider lowering the price of its offer. "Whether the completion is delayed by regulatory review or by intransigence by Take-Two management, it becomes less valuable to EA with each passing month."

Shares of Take-Two slipped 24 cents Thursday to $25.85, and EA fell 56 cents to $51.46.

EA is the world's largest video game software company, with expected annual revenue of more than $2 billion for the fiscal year that ended March 31. Its roster includes game franchises such as "FIFA Soccer," "Madden Football" and "The Sims." Take-Two said it expected sales of $1.2 billion to $1.4 billion in its current fiscal year, which ends Oct. 31, largely on the projected sales of "Grand Theft Auto IV," a highly anticipated game due April 29.

Although the combined revenue would comprise a fraction of the estimated $28-billion global market for video game software, antitrust experts said regulators may consider a merger's effect on the narrower market of sports games, which EA dominates. Take-Two's 2K Sports is widely regarded as EA's only significant competitor in sports games.

Wedbush Morgan Securities analyst Michael Pachter estimated that EA controlled 40% of the $3-billion global market for sports games, while Take-Two held a 6% share.

Regulators employ a 5% rule in determining how narrowly to define a market, said Mark F. Grady, director of the Center for Law and Economics at UCLA. "Suppose you had a 5% increase in the price of football games. Would other game companies enter the market?" he said. "If they don't because it would be too risky or expensive to do so, then football games can be considered a relevant market. It is possible that it can be very narrowly sliced."

alex.pham@latimes.com

thomas.mulligan@

latimes.com

Pham reported from La Jolla and Mulligan from New York.